Merger Update

The OFT has today exercised its discretion not to refer to the Competition Commission two acquisitions by bus companies Go-Ahead and Arriva in the North East of England.

Arriva and Go-Ahead entered into two separate agreements to transfer local bus routes - including related assets and staff - around Hexham and Ashington in Northumberland.

The OFT concluded that each transaction gave rise to a realistic prospect of a substantial lessening of competition:

·; the principal concern created by the Arriva acquisition was the loss of the competitive constraint from potential expansion that Arriva faced from Go-Ahead, in particular in the area around Cramlington and Ashington;

 • the concern caused by the Go-Ahead acquisition was the reduction in existing competition on a route from Newcastle to Hexham.

 However, the value of the affected markets in both cases was small enough to allow the OFT to exercise its 'de minimis' discretion not to refer the merger to the Competition Commission.

Given the simultaneous timing of these two transactions, the OFT also carefully examined whether they could give rise to an increased risk of 'market sharing', whereby each party would benefit from restricting its activities to clearly specified areas. The OFT ruled out this concern in the absence of any evidence of pre-existing coordination, the fact that the parties would continue to compete with each other across the wider area, and the continuing presence of other bus companies.

Amelia Fletcher, OFT Senior Director of Mergers, said:

'The strength and extent of our concerns in this case were limited by the local presence of other bus operators, most significantly Stagecoach, which could expand if a commercial opportunity arose.

'The competitive constraints remaining on each acquirer, coupled with the fact that the value of the routes affected in each case was reasonably small, meant that we considered neither transaction justified the additional expense to the taxpayer of a reference to the Competition Commission.'

NOTES

1. The Reference Test - The OFT has a duty to make a reference to the CC if the OFT believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

2. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.

3. The text of this decision will be placed on the Office of Fair Trading's web site at www.oft.gov.uk as soon as is reasonably practicable.

4. The 'de minimis' exception is formally known as the 'markets of insufficient importance' exception to the duty to refer under the Enterprise Act 2002. The OFT has considered this exception in around 22 cases and has applied it in 12 cases, including these two latest ones since the publication of its revised 'de minimis' guidance, (OFT516b) in 2007. The OFT is currently reviewing the responses to its Consultation paper on the exceptions to the duty to refer (including 'de minimis' and its ability to accept undertakings in lieu of reference) which is expected to be published in Spring 2010.

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